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February 13, 2012

Pre-Facebook U.S. IPO Market Off to a Sluggish Start in 2012

IPOs priced so far in 2012 are off 30% compared with this time last year, Renaissance Capital reports

Technology is the most popular sector for IPOs (Source: www.RenaissanceCapital.com)

With Facebook’s initial public offering set to launch, the IPO market clearly looks set to get a big infusion of capital come spring. Considering the current weakness in U.S. IPOs, it will be a welcome boost.

According to Greenwich, Conn.-based Renaissance Capital, U.S. IPOs priced so far in 2012 are off 30% compared with this time last year. Year to date, proceeds raised a total of $1.5 billion, a minus 80.9% change from last year. So far, 22 IPOs have been filed, down 8.3% over 2011 at this time.

Even before the Facebook launch, the Technology sector’s IPOs have been the most popular in the last 12 months, at 35% of all IPOs, in 11 sectors. Tech deals totaled $400 million for five deals. The next largest sector, Health Care, saw three deals totaling $200 million.

Average total return on Technology IPOs came to 22.2% versus 6.8% for Health Care. Another stand-out sector was Consumer, which launched two deals totaling $200 million for an average total return of 39%.

In a positive for the market, Renaissance Capital’s U.S. IPO index shows a 14.7% return so far this year compared with 7.5% for the S&P 500 index of large-cap U.S. equities.

Renaissance said in a report last July that there are rumors of a possible $100 billion market cap for Facebook when it enters the public markets. However, the independent IPO research firm warns that the Tech sector might be headed toward another boom-and-bust cycle, which it already experienced in 2000.

“Despite the intense interest in these second-generation Internet companies, there is significant and serious debate about what they are truly worth,” Renaissance reported. “They have achieved impressive growth to date and address large opportunities, but they still have a great deal to prove.”

Public and private valuations imply enterprise-value-to-sales and price-to-earnings ratios for these stocks that are exceptionally high even for growth companies, and differing assessments of their prospects and valuations have caused trading to be highly volatile for those that have already gone public, Renaissance said.

In the global IPO race, which comprises all IPOs that raise more than $100 million in proceeds, the United States is the winner, at $1 billion, as of Monday. China comes next, at $500 million, followed by the United Kingdom, at $300 million.